FX: Stocks Rally but Only Non-European Currencies Follow
It is the first fully participated trading day in the second quarter. Market participants around the world have returned from their Easter holidays and we are beginning to see larger movements in equities and currencies but unfortunately the optimism in stocks is not mirrored in all major currencies. The nominal rally in USD/JPY is consistent with the gains in the S&P 500. The commodity currencies are also performing well but the euro, British pound and Swiss Franc have weakened against the U.S. dollar. EUR/USD had been under pressure for most of the European trading session but when the news of Cyprus’ Finance Minister resignation broke before the U.S. stock market open, the selling exacerbated. Short-term support in the EUR/USD is at 1.2770 with more significant support down at 1.2660.
While most traders are focused on EUR/USD and USD/JPY, the biggest move today is in the GBP/USD, which is down approximately 100 pips or 0.65%. A continued contraction in the manufacturing sector and a decline in FLS lending kicked the selling off and the move gained momentum in the early North American session. Near term support in the GBP/USD is at the 20-day SMA of 1.5090.
U.S. equities opened strongly today with the S&P 500 rising just shy of is record high. The only pieces of U.S. data on the calendar this morning were factory orders and the IBD/TIPP Economic Optimism index. Factory orders rose 3% in the month of February. This was slightly stronger than expected and bullish for the USD especially since the previous month’s report was revised up from -2% to -1%. According to IBD/TIPP, Americans grew more optimistic about the outlook for the U.S. economy in the month of April. The index jumped from 42.2 to 46.2 and this strength should be mirrored in the University of Michigan Consumer Confidence report due later this month.
Four Federal Reserve officials are also scheduled to speak today (Kocherlakota, Lockhart, Lacker and Evans). Evans is the only FOMC voter and we don’t expect him to say anything different from last week. At the time, he said the outlook for the U.S. economy is “pretty good” but felt the Fed should continue buying bonds through the end of this year and warned they could increase QE if job growth falters.